After an unexpectedly weak US jobs report, markets sharply scaled back expectations for a Federal Reserve rate hike. Yet this shift hasn’t yet solidified: oil remains expensive amid uncertainty around the Strait of Hormuz—keeping inflation risks alive. The next major decision point is the US CPI release on August 12.
Weak Jobs Data Dented Rate-Hike Expectations
The July labor market report came in significantly softer than forecast. Nonfarm payrolls fell by 23,000, while May and June data were revised downward by a combined 103,000. The unemployment rate stood at 4.1%. Crucially, average monthly job growth over the prior 12 months slowed to just 34,000—a clear loss of momentum in the labor market.
The fixed-income market reacted swiftly: the probability of a Fed rate hike in September dropped to roughly 44%, down from 67% a week earlier, and the yield on 10-year Treasuries fell to ~4.64%. This immediately pressured the US dollar. On Monday morning, the US Dollar Index traded near 99.7—close to its two-month low. EUR/USD was trading near 1.1551, GBP/USD at 1.3486. The yen, conversely, weakened again: USD/JPY rose to 158.30.
The dollar now needs fresh justification to rally—and inflation could provide it.
CPI Will Be This Week’s Key Test
The US Consumer Price Index (CPI) for July will be released on August 12 at 15:30 Riga time (8:30 ET), as confirmed by the official BLS calendar. The consensus forecasts a ~0.2% month-on-month rise in core CPI, with the annual rate slowing to 2.5%.
Markets no longer care only about inflation in isolation—they’re asking whether weakening labor demand is translating into sustained price-pressure relief.
Analysts view US inflation as the dominant factor capable of reshaping market sentiment this week. NAB strategist Rodrigo Catril believes the Fed is more likely to remain on hold and observe developments rather than rush into another move.
A soft CPI print would confirm the combination of slowing employment and disinflation—negative for the dollar and yields, but supportive for gold and cryptocurrencies. Conversely, elevated inflation could quickly bring rates back to center stage. That brings us to the second critical driver: oil.
Oil Remains Held Hostage by the Strait of Hormuz
Early Monday, Brent briefly climbed toward $85, but then gave up nearly all gains. By 06:43 GMT, Brent stood at $83.54 per barrel, while WTI traded at $78.03. Both benchmarks lost over 7% last week on hopes of imminent reopening of the Strait of Hormuz.
Now, optimism has faded. Iran announced that its agreement with Oman on alternative shipping routes is nearing finalization—but simultaneously stated full reopening of the strait depends on the US meeting additional conditions. Immediate supply risks also persist: Houthi forces claimed an attack on a Saudi Aramco refinery in Jazan, while ADNOC reported 15 attacks on its vessels since the conflict began. As a result, the oil market sits between two opposing scenarios:
- Actual restoration of free navigation could rapidly erase the geopolitical risk premium.
- A breakdown in negotiations or new attacks would bring that premium back instantly.
Major banks’ forecasts reflect this ambiguity. Citi raised its Q3 Brent price forecast from $75 to $80, but still expects a drop to ~$70 in Q4 if the conflict eases. Goldman Sachs sees $80–90 as the most likely range until either a credible Iran deal emerges—or tensions escalate sharply.
This matters critically for the Fed: falling oil prices ease inflation control; a fresh surge could offset much of the disinflationary benefit from a weakening labor market.
Gold Holds Above $4,300
Gold emerged as one of the main beneficiaries of Friday’s labor data. After hitting a seven-week high on Monday, minor profit-taking set in: spot gold slipped 0.3% to $4,330.46 per ounce, while US futures declined 0.2% to $4,390.60.
The metal’s primary support stems from reduced expectations for Fed rate hikes and lower bond yields. Ongoing geopolitical uncertainty adds further demand.
Tim Waterer, Chief Analyst at KCM Trade, views the pullback as normal consolidation after strong gains and expects support to hold above $4,300. A weak CPI would open room for further upside. However, a new oil spike could reverse the picture via higher inflation expectations and rising yields.
Medium-term bank forecasts remain mostly above current levels. JPMorgan expects an average price of ~$4,500 in Q4; Goldman Sachs previously cited $4,900 by end-2026. Bank of America lowered its 2024 average forecast to $4,360 due to a tighter Fed stance but still sees $5,000 as achievable once the tightening cycle concludes.
Bitcoin Rebounds—but Remains in Risk Zone
Bitcoin traded at ~$65,223 on the morning of August 10, up ~0.6% from the prior close. Its intraday range was roughly $64,756–$65,348. Ethereum traded near $1,625. The macro backdrop for crypto improved for the same reason as gold: weaker labor data reduced the odds of further rate hikes. Lower expected cost of capital traditionally improves investor appetite for risk assets.
An additional sector-specific catalyst emerged: the US Senate advanced a procedural step on the CLARITY Act, legislation intended to clarify regulatory authority splits and establish a clearer legal status for various digital assets. Reduced regulatory uncertainty is potentially positive for institutional adoption.
Yet Bitcoin’s fundamentals remain mixed. In July, Citi cut its 12-month BTC target from $112,000 to $82,000, citing weak ETF inflows and fading investor interest. Its bear case projects ~$53,000 in recession and continued capital outflows. Since then, Bitcoin has recovered from ~$59,000 to ~$65,000, and progress on crypto legislation removes one factor Citi highlighted. Going forward, price action will depend increasingly on capital inflows and overall liquidity conditions.
CPI Could Set Direction for Four Markets at Once
A clear chain of causality is emerging over the coming days
FAQ
Why did the US dollar weaken after the July jobs report?
The July nonfarm payrolls fell by 23,000 and prior months were revised down by 103,000, signaling slowing labor demand. This reduced market expectations for a September Fed rate hike—probability dropped from 67% to 44%—and pushed 10-year Treasury yields lower, pressuring the dollar.
How could the August 12 CPI release affect gold and Bitcoin?
A soft CPI print would reinforce disinflation and lower rate-hike odds, supporting gold (already above $4,300) and Bitcoin (up ~0.6% on easing monetary policy expectations) as risk assets benefit from lower yields and looser liquidity.
What is the current oil market risk tied to the Strait of Hormuz?
Oil remains vulnerable to geopolitical risk: Iran links full Strait reopening to US concessions, while Houthi attacks and ADNOC vessel incidents sustain supply concerns. Brent trades near $83.54; any escalation or stalled negotiations could quickly restore the geopolitical risk premium.
